Policy Response to Youth Unemployment in Latin America

Policy Response to Youth Unemployment, Underemployment and
Informal Employment in Latin American Countries’

Latin American countries face important labor market problems, the labor situation being particularly critical for youth, whose unemployment rates are more than double those of adults. Self-employment programs constitute a relatively recent and appealing policy option. Their principal aim is to develop the abilities of entrepreneurial youth to run their own businesses. In the Latin American context, where wage-earning labor demand is insufficient to absorb the increasing labor supply; the principal advantage of this type of program over other policy options is that they are less likely to produce crowding-out effects, that is, to transfer unemployment from policy beneficiaries to non-beneficiaries.

Impact evaluations of two Peruvian self-employment programs targeted at disadvantaged youth find positive effects of these programs on the probability of business creation and on beneficiaries’ earnings. However, empirical evidence of the impacts of self-employment programs is still incipient and much has to be done in this area. Nevertheless, self-employment programs appear as an attractive policy response to youth unemployment, especially taking into account the Latin American context; and therefore they must be regarded as an important component of the global employment creation strategy in these countries. (Contributed by Miguel Jaramillo, dgPoverty Advisor)